Welcome Dr Carney. The graft starts here...

Thursday 27 June 2013 10:23 BST

The most pressing job Mark Carney has next week when he takes over at the Bank of England is letting people down as gently as possible.

He may be a superstar with a salary to match, but the carnage wreaked by the US Federal Reserve’s intervention on tapering money-printing underlines how far the Canadian will be at the mercy of global events.

Much of the five-year term of the world’s most powerful central banker will be shaped by progress in the US, slowing growth in China and the eurozone malaise — not to mention more austerity at home. Public-sector cuts will drag on until 2018, according to the Office for Budget Responsibility. Today’s revisions to GDP magic away the double-dip but reveal a more fragile economy than previously thought.

Far from being a central banking über-mensch, there’s little he alone can do about any of these factors. As one of nine on the monetary policy committee, he has to make a persuasive case for more action if he sees fit. If the spike in long-term interest rates that has so worried the Financial Policy Committee continues, he will find this easier. Besides this, there are plenty of other things filling his in-tray.

Banks

Bedding in the new Prudential Regulation Authority and setting up rolling annual stress tests for the banks is a good start, but there is more work to do. In the words of one expert who has spent six months poring over the balance sheets of banks around the world: “We’ve heard a lot about resolution regimes and living wills, but fundamentally is the structure of the financial system changed? No. If a Barclays or another big bank falls over are we any safer? No.”

Communication

Outgoing Governor Sir Mervyn King believes communication is a “second order” issue, although the turbulent reaction to Fed chairman Ben Bernanke last week suggests otherwise. The delicate nature of unwinding QE at some point means Carney should look at overhauling the whole framework of central bank communications. Detailed statements after every meeting — change or no change — and European Central Bank-style press conferences would be a start. Waiting two weeks to hear how people voted should also change.

Guidance

If the spike in UK bond yields persists, Carney’s beloved forward guidance could be useful in dampening market expectations, if he can’t win over the MPC on quantitative easing. It may also convince businesses and consumers to spend a bit more.

But in the current policy impasse — where six members are voting against QE — the wider MPC is likely to be cautious, and some are hawkish over more stimulus in any case.

Expect plenty of caveats and conditions when this guidance emerges, particularly linked to inflation staying close to 2% over the MPC’s two-to-three year horizon.

Inflation

The possibility of being forced to write an open letter to the Chancellor to explain high inflation just days after getting into the hot seat could be an embarrassment. But if he does have to get his pen out, at least inflation is likely to have peaked. Factory gate and input prices are coming down and wage growth is pretty anaemic. Carney’s initial problem on inflation may be explaining the case for doing more now in the context of potentially undershooting the target further down the line, particular after much-improved Q2 growth estimates.

Shuffling the pack

Carney has to replace Deputy Governors Charlie Bean and Paul Tucker next year. Andy Haldane looks a shoo-in despite clashing publicly last year with the Canadian, who seems the kind of character able to handle people disagreeing with him. The lower-profile but sharp Paul Fisher could also be worthy of elevation. Insiders say chief cashier Chris Salmon looks the best of the talent at executive director level, unless Carney makes an unlikely choice outside the Bank. With that, Dr Carney, good luck in Threadneedle Street. If the last month is anything to go by, you may need a bit.